Thursday, August 4, 2011

My View

Random ruminations from your resident curmudgeon...

We have now seen Congress and the President finish their kabuki dance and agree to raise the debt ceiling by another $2.4 trillion. Everyone should be happy and the markets should be copacetic about what has transpired, right? Uh...no. The major U.S. investment indices have lost over 10% in the past 7 trading days as investors have come to realize that this debt deal is not the necessary and painful action that is needed to move our country back onto sound fiscal footing. In fact, once the deal was approved, Congress accessed funds under the new bill and drove our total indebtedness in this country up to a level that matches our total Gross Domestic Product of $14 trillion. This level of indebtedness is unprecedented in our history, and one of the dangers that it presents is that any financial bump in the road that our country encounters will test our ability to meet that financial obligation. Markets have responded accordingly by selling off. A distressed financial situation in this country coupled with a horrifically weak economy means that our financial wherewithal is at capacity, and within 18 months (or less, depending on how profligately Congress spends) we as a nation will be re-visiting this same problem again. And the next time we talk about it, the solutions are going to be even more painful than those we have recently discussed.

So what is the big deal about a debt ceiling anyway? Here is why it is important. In the history of our country, Congress had to authorize every single bond issue- the public debt- and justify that debt to their constituents. That changed in 1917, when the U.S. faced the need to rapidly issue debt to meet the demands of mobilizing men and materiel for World War I. A "debt ceiling" was created that allowed Congress to authorize an obligation of the United States up to that limit and through which the Treasury Department could not pass in issuing debt. The limits of the obligations of this country were self imposed by Congress and could only be raised by that body. As attitudes toward debt changed, and as politicians saw that having access to the "full faith and credit" of the United States and the pocketbooks of the taxpayers was a good thing for their re-election chances, the discussion and debate over raising the debt ceiling fell away and instead, the "debt ceiling" was automatically raised when the House of Representatives proposed a new budget. What has finally transpired at the national level is what has transpired in so many individual households throughout our country, and it is that we have collectively awakened to the fact that we cannot pay for what we have spent. We have to rein in spending, learn to "live within our means" and realize that the tax burden on working America to pay for all this spending is going to be ridiculously high. And this is where the debt ceiling moves from afterthought for politicians to 10 ton weight pressing down on their re-election chances. Americans have finally awakened to the fact that our leaders have spent wildly and imprudently, and they want it stopped. Enforce the debt ceiling limits and live within your means, say most Americans. And this is painful for politicians, because they no longer have our tax dollars to throw around to further their re-election chances. We will fight this fight again, because we will quickly bump into that debt ceiling. Washington cannot help themselves. Perhaps this best sums up the dilemma that we the people face with many of our elected officials:

You know times are tough economically when your bank returns a check for "Insufficient Funds" and you have to call them and ask if they meant you or them.

Why is fixing - really fixing our country's financial woes essential? Can't we just print more money or raise taxes some more? Yes, we can do those things and they will have an effect, but here is the most important, and most frightening, reason why we need to get our financial house in order: between now and 2017, the number of Americans that have reached retirement age will double, from 35 million to 70 million. What this means is that the cost of our entitlement programs- Medicare, Social Security, Medicaid, and Obamacare, will double. Perhaps even more importantly, a very productive component of our nation's workforce will stop producing wealth and income and shift to consuming services and resources. Congress knows this, heck, everyone in Washington knows this. So far, there has been very little honest discussion about the demographic changes that are going to force the political and financial hands of our leaders. We need to have that conversation, and we need to be honest about how we are going to handle these dysfunctional and bankrupt programs. We owe it to these 70 million that are expecting some form of benefit and we owe it to these in the work force that are expected to pay for those benefits. To say we cannot touch these programs or that these programs are "off-limits" is disingenuous if not an outright lie. We have already touched them and created a massive problem. The solutions to fixing those problems will be painful and it will require an honest discussion about the viability of each of these entitlements.

My cousin had an exorcism but couldn't pay for it, so she was re-possessed.